Should You Ask Your Mortgage Lender About Recasting?
Do you have extra cash and a want to lower your monthly mortgage payments? Are you worried about applying for a new mortgage loan because of strict credit guidelines? Mortgage Recasting could be right for you.
What is a Mortgage Recast?
Mortgage Recasting is changing or modifying the terms of a nongovernment-type loan (FHA, USDA, VA). The mortgage loan has to be at least 120 days old to be eligible for recast. This process is handled after closing on a case-by-case basis and can be handled by any mortgage servicer. While any servicer can recast, there is no guarantee that they will – they are by no means obligated.
Recasting is achieved by re-amortizing (lowering the required principal and interest payment) based on:
- The mortgage interest rate of the loan
- The remaining time left on the loan
- The balance of the mortgage after the borrower has significantly paid down the balance
It is not a provision of or part of the initial underwriting or approval of the loan. Your Servicer or Mortgage Lender will handle the recasting process. A mortgage recast involves paying a lump sum of the principal amount and asking to have your monthly payments adjusted according to the original interest rate and loan terms. The large payment reduces the principal amount, so your new monthly payments lower slightly and you save on interest paid over the life of the loan.
Since a mortgage recast changes the terms of an existing loan, it is handled on a one-off case by case basis by the servicer of the existing loan. Mortgage lenders and investors do not offer guidelines or guarantees regarding mortgage recasting.
Does my Mortgage Lender Have to Recast my Mortgage?
Since recasting is changing the terms of an existing loan, investors are not obligated to recast your mortgage. It is not a consideration in the original loan approval. Many mortgage lenders will (and do) recast but it’s important to note that it’s not a guarantee.
Recasting is handled on a case-by-case basis by the servicer of the loan. Most Mortgage Lenders and Servicers will charge a fee to review your loan and determine if it’s eligible for recasting. Still, all Servicers will recast an eligible loan, though most will not post anything in their loan guidelines on the subject. Servicers do not openly advertise mortgage recasting as an option.
What Makes my Loan Eligible for a Mortgage Recast?
Government-type loans like FHA Loans, VA Loans, and USDA Loans, are not eligible for mortgage recasting. Each servicer will review your loan payment history, consider the amount of money paid down in both money and percent of the outstanding balance, and compare against the remaining term of the loan. They will also consider the current amortization based on the balance after the payment and making regular payments as per the original loan terms. After all of these elements are examined, your mortgage lender will determine if you are eligible for a mortgage recast.
Again, it is important to note that they are under no obligation to recast.
What Can I Expect During Mortgage Recasting?
There are a few things to note and expect during a mortgage recasting:
– To initiate, Borrowers must contact their Mortgage Lender or Servicer (where they are making the payments).
– Borrowers should contact the Mortgage Lender or Servicer BEFORE making the lump sum payment.
– Servicers generally charge a fee to recast (Typically around $350).
– Mortgage Lenders and Servicers are not likely to allow a mortgage recast on a loan that is currently, or has ever been, delinquent.
– Servicers will require a loan be at least 120 days old before they will entertain a recast request.
– A certain percentage of the balance will need to be paid in a lump sum for some servicers to consider recasting. Other Servicers will only require a specific dollar amount be paid.
– The Servicer will review the age of the loan, LTV/CLTV, payment history, if previous recasting or other types of modification(s) have happened, and more.
How can I Learn More About Mortgage Recasting?
If you would like to get more information on Mortgage Recasting, please call us at 302-703-0727. Need to consult with an experienced Loan Officer? Fill out a consultation form on our site.